Prod Comm hamstrung by playing it too safe

12 December 2019

Local Government New Zealand (LGNZ) is lamenting the lack of courage shown in the Productivity Commission’s Local Government Funding Report, saying that while it makes many worthy recommendations, its play-it-safe-approach relegates the report to a mere repeat of the nine rates reviews that have preceded it since 1945.

Local Government New Zealand (LGNZ) is lamenting the lack of courage shown in the Productivity Commission’s Local Government Funding Report, saying that while it makes many worthy recommendations, its play-it-safe-approach relegates the report to a mere repeat of the nine rates reviews that have preceded it since 1945.

“The report underscores the well-understood point that property rates are an efficient mechanism for charging and collecting local government taxes. We don’t disagree, especially where councils are operating in a stable environment,” said LGNZ President Dave Cull.

“But we’re not in a stable environment. In 2004, Stats NZ predicted our population would hit five million people by 2050, but we’re on track to hit that number in 2020. That’s 30 years ahead of schedule and our critical local infrastructure hasn’t kept up with this growth.”

Mr Cull noted a major reason for this is because rates confronted local communities with the costs of paying for growth infrastructure upfront, whereas the short-term tax benefits of population growth wash up exclusively in central government’s coffers in the form of GST, salary and profit taxes.

LGNZ has long argued that local government’s revenue tools need to be broadened and linked to the economic cycle, either through a share of GST, local capital grants, resource rents, or tourist taxes.

“We’re not calling for rates to be scrapped, but for this mainstay of local government funding to be augmented with revenue tools that give communities a clear reason to vote for pro-growth initiatives. Until we tackle the political incentives at the ballot box created by the rates system, New Zealand’s infrastructure will continue to fall behind.”

“That’s what makes the Productivity Commission’s endorsement of the status quo so disappointing. If the Government entity charged with coming up with bold new ideas for New Zealand can’t think courageously, then who can?”

“They’ve played it extremely safe, and haven’t left an inch to try something different at the margin - the irony being that only by trying something different can we find new and innovative ways to be more productive as a country.”

The local government peak body welcomed many of the suggestions put forward about how councils can lift their performance, noting that much of it was already in train through LGNZ’s work programme.

What was less certain was the Government’s willingness to accept the recommendations in the report as they relate to central government, particularly on the need for central government to tally up the invisible costs it imposes on ratepayers through the legislative process.

“We’ve been highly critical of central government’s unfunded mandates for years, and economists and governance experts up and down the country all agree that government should at a minimum disclose the costs they impose on ratepayers when making laws,” said Mr Cull.

“But as vocal as we’ve been on this issue, we’ve seen successive governments simply refuse to be transparent this. The challenge on Ministers Robertson and Mahuta – as sponsors of this report – is to have the courage to finally grasp this nettle.”